IMO sulphur reduction deadline to hit the world of commodities

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The global shipping industry is dreading a regulatory decision that while reducing maritime pollution, will nearly double fuel costs in a sector already reeling from its worst downturn in decades.

In an attempt to curb emissions from ships, the UN International Maritime Organization (IMO) has placed a cap on sulphur content in marine fuel oil from 2020.

Six months ago, the IMO which governs international shipping, decided to cut sulphur limits in marine fuel from 3.5 per cent to 0.5 per cent in 2020. In two and a half years’ time, ship owners will either have to switch to more expensive higher quality marine fuel, invest in emissions-cleaning systems referred to as “scrubbers”, or switch to alternative fuels such as liquefied natural gas.

The shipping industry is among the world’s largest emitters of sulphur behind the energy industry, with sulphur dioxide (SO2) content in heavy fuel oil up to 3,500 times higher than the latest European diesel standards for vehicles.

To combat such pollution, the International Maritime Organization’s (IMO) Marine Environment Protection Committee met in London on Oct. 24-28 last year to decide whether to impose a global cap on SO2 emissions from 2020 or 2025.

The deadline has now been stipulated from 2020.

Earlier, the International Chamber of Shipping (ICS), a global trade association of shipowners, had asked the IMO to firm up details of a commitment to cut carbon dioxide (CO2) emissions from the shipping industry as soon as possible. Shipping contributes about 2.2 percent of global CO2 emissions, the IMO said, compared with 13 per cent of SO2 and 15 per cent of nitrogen oxide emissions.

China, EU, both want less sulphur

Large container ships of 15,000-18,000 TEUs (20-foot equivalent units) consume up to 300 tonnes of high-sulphur fuel a day at sea, while a 300,000 deadweight tonne (DWT) supertanker guzzles up to about 100 tonnes per day. Health experts say sulphur is responsible for deadly heart and lung diseases.

The European Union has already agreed that the 0.5 per cent sulphur requirement will apply in 2020 within 200 nautical miles (370 km) of EU Member States’ coasts, regardless of what the IMO decides.

China, home to the world’s busiest container ports, is also demanding cleaner fuels. Authorities in Shenzhen, the world’s third biggest container port, introduced tighter controls this month, demanding that ships calling there do not use fuel with a sulphur content of more than 0.5 percent.

In two and a half years’ time, ship owners will either have to switch to more expensive higher quality marine fuel, invest in emissions-cleaning systems referred to as “scrubbers”, or switch to alternative fuels such as liquefied natural gas. Many analysts see ships shifting to higher grade marine fuel. Analysts predict that this might increase shipping cost by 85 per cent. Also, the knock-on effect of the change in rule to marine fuel is likely to ripple beyond the world’s shipping fleet to the oil industry and commodities trading.

The shipping industry is crucial for world trade, carrying about 90 per cent of goods, and fuel costs account for 70 to 80 per cent of total voyage expenses, according to S&P Global Platts. Fuel consultants estimate that the shipping industry’s fuel costs could rise by up to $60 billion in 2020, or more than 50 per cent to $174 billion.

 

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